Splitting the Roles of the Chairman and the Chief Executive Officer

Topics: Corporate governance, Board of directors, Management Pages: 6 (1922 words) Published: November 6, 2011



The split of the Chairman and the Chief Executive Officer (CEO) roles are considered to be clearer in many ways in Good Corporate Governance. Discuss this statement in view of the Zimbabwean context.

There is much debate as to whether companies are better served by splitting the roles of CEO and Chairman. What are the advantages and disadvantages of separating these two positions? Who is in the best position to determine whether it is worthwhile for a particular board? Does that person or group of people have the authority to impose that structure? These questions serve as a good way to look at the overall conflict between giving corporate management enough authority to do the job while maintaining sufficient accountability to make sure that the job is done for the benefit of shareholders. The Zimbabwean Companies Act, King III of South Africa, the British Cadbury Report and the Sarbanes Oxley Act 2002 advocate for the separation or splitting of the roles of the Chairman and Chief Executive Officer. The following paragraphs try to discuss the splitting of these above mentioned roles and with relevance case study of Zimbabwe. According to the King III the roles of the CEO and Chairman should be clearly stated so as to avoid conflicts. The Table below is a summary of the roles according to the Zimbabwean Companies Act and the King III report. Fig: 1A

•Setting the ethical tone; •Providing overall leadership; •Participating in the selection of Board members; •Overseeing a formal succession plan for the Board; •Setting the Board work plan; •Being a link between the Board and management; •Maintaining an arms-length relationship; •Adopting a lead role in removing non performing directors; •Mentoring new directors; •Ensuring that directors have a knowledge of their duties and responsibilities; •Ensuring that good relationships are maintained with major shareholders and stakeholders.

Chief Executive Officer/(MD)
•Achieving financial and operating goals and objectives; •Ensuring that a long term strategy is developed; •Ensuring that a positive and ethical work climate exists; •The CEO should be the chief spokesman of the company; •While the CEO should not be a member of Board Committees, he should attend meetings by invitation;

In large companies, good governance requires the roles be split, and virtually all companies do. In tech start-ups, often the founder assumes the CEO role. He may also hold most of the equity, and therefore appoint himself Chairman as well. If the Chairman/CEO is an experienced entrepreneur and business manager with significant experience in Boards and fiduciary duty, then he may have the experience necessary to separate the roles of management and oversight. He can guide the Board in its duty, (one of which is to evaluate the CEO), and manage the company, (one duty of which is to report all material events to the Board). An example of such a company where the Chairman is the CEO and Chairman is ZECO Holdings where Phillip Chiyangwa holds these two positions. This has seen him dominating the Z.S.E listed holding construction company in strategic decision making as well as the daily operations of the company. This further contributed to the underperformance of this organization as evidenced by huge losses suffered over the last two financial years. The very existence of the board is based on the need for accountability. The board exists to keep management accountable for the vast discretionary power it wields. Thus, when the chairman of the board is also the CEO, it makes management accountable to a body led by management. It can mean that the CEO is put in the position of evaluating his own performance. For the same reason students are not allowed to grade their own exams, that presents...
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